Due to the ongoing financial effects of COVID-19, a number of SMSF have continued to find themselves in a position where they, or a related party, are having to provide rental deferral relief to tenants. For example, in Victoria the current Commercial Tenancy Relief Scheme remains in place until 15 January 2022.
As a result of the fund providing a rental deferral, the situation may give rise to contraventions of the in-house asset (IHA) provisions because:
- a rental deferral provided by the fund to a related party tenant is considered a loan to the related party, which would ordinarily be an IHA of the fund (see SMSFR 2009/2)
- if a fund has an investment in a related non-geared company or unit trust (Division 13.3A of SIS Regulations) that is exempt as an in-house asset, and the related party provides a rental deferral to a tenant, this will cause the exemption to cease and result in the investment breaching the IHA rules.
If the value of the asset, or the total value of the fund’s in-house assets, exceeds the 5% IHA threshold at the end of the income year, the fund ordinarily needs to dispose of the asset, or the excess before the end of the next income year.
The Australian Taxation Office (ATO) in recognition of the ongoing impact of COVID-19 has extended the availability of the rental deferral relief within SPR 2020/2 to cover the 2021-22 income year that provided relief for the 2019-20 and 2020-21 income years. You can read our previous blog post for more details about the ATO’s determination.
How it applies
Under the determination, made by way of legislative instrument (LI) for the purposes of paragraph 71(1)(f) of the SIS Act 1993, the relevant asset is not considered an in-house asset for the 2019–20 and/or 2020–21 income years, or any future income years, provided certain conditions are met.
A draft LI extending the relief to cover the 2021-22 income year, and related Explanatory Statement has been published by the ATO and is available for consultation until 17 December 2021. Whilst the instrument is being finalised, the ATO has acknowledged in the interim it will adopt the compliance approach referred to communications and detailed in the Addendum to the Auditor/actuary contravention report instructions.
For further information, refer to the ATO’s current guidance on their website (QC 67360).